Best Buy Earnings: Renew Blue Is Working

A few weeks ago, equity analysts at JPMorgan Chase published some research about consumer-sector stocks and they made a pretty straightforward argument: The U.S. consumer isn’t dead, just beleaguered. After a melancholy year and an underwhelming holiday shopping period for some consumer businesses, spending is bound to increase in the coming quarters, and the business machine that it fuels will come back to life. One of the companies that the analysts suggested investors take a look at is Best Buy Co. Inc. (NYSE:BBY), a consumer electronics retail giant with a stock that fell over a cliff in January, losing more than 25 percent of its value.

The analysts appeared to be working within a “buy on the dip” theory for Best Buy. Shares spent most of 2013 engaged in a frenetic rally, climbing more than 250 percent between December 2012 and December 2013. The rally was born on the back of a massive restructuring program called Renew Blue, which was orchestrated by turnaround CEO Hubert Joly. But the rally ended after the company reported negative comparable-store sales growth for December. Over the course of a month, shares fell from above $40 to below $25 and have since recovered to just over that price level.

Those who share the analysts’ perspective and have a bullish thesis on Best Buy were rewarded on Thursday, when the retailer reported better-than-expected fourth-quarter and full-year results.

First, Best Buy’s top-line results weren’t the selling point. For the quarter, comparable-store sales contracted 1.2 percent on the year and revenue declined 3 percent to $14.47 billion, below the mean analyst estimate of $14.66 billion. For the year, comparable-store sales fell 0.8 percent and revenue fell 3.4 percent to $42.4 billion, below the mean analyst estimate of $42.7 billion. Comparable online sales did increase, though, up 25.8 percent on the year in the fourth quarter and up 19.8 percent for the year.

The bottom line was where the surprise came in. Best Buy reported GAAP earnings from continuing operations of 88 cents per share and non-GAAP earnings of $1.24 per share, down 15.6 percent on the year but still above the mean analyst estimate of $1.01 per share. For the year, adjusted earnings fell 18.5 percent to $2.07, beating the mean analyst estimate of $1.84 per share.